Robo-advice to run for money across the board

Robo-advice “has legs” across a much broader population than previously thought, according to Recep Peker, research director with Sydney-based firm Investment Trends.

Peker said the results of a new Investment Trends survey, which sampled 9,000 online share investors and 1,450 financial advisers in five countries, found robo-advice was a population option for both lower-balance pre-retirees and wealthy younger clients.

“A lot of people talk about robo-advice as a solution for the lower-end, ‘gen Y’ population but there’s a different distribution of users than providers might expect,” he said.

The 290- page Investment Trends report also says the robo-clientbase had surged over the last 12 months, although the growth to-date has primarily been in the US market.

Peker said the US robo-advice market has more than doubled over the last year from an estimated 500,000 users to more than 1 million at the latest count.

Most of the 900 robo-advice clients captured in the Investment Trends sample were based in the US with just a handful of users in the four other surveyed populations in Australia, France, the UK and Germany.

“Robo-advice is nascent everywhere but the US,” he said. “But it’s notable that growth in the US has accelerated so strongly this year after previously seeing just gradual increases.”

According to Peker, the step-change in US robo-advice growth was due to the recent arrival in the market of “established brands” such as Charles Schwab, Fidelity, ETrade and Vanguard.

Big-name brands have a much “lower cost of acquisition” for robo-advice clients than start-up “disruptors”, he said.

While the US leads the way in robo-advice, Peker said many other jurisdictions, including Australia, were working on solutions.

“There are a lot of clever people in Australia looking at robo-advice now,” he said.

The Investment Trends research found Australian investors were waking up to the concept, too, with 27 per cent of those surveyed saying they had heard of robo-advice compared to just 19 per cent six months previously.

“Many investors are taking notice of robo-advice, and have an interest in learning more about this potential digital disruptor in the financial services industry,” Peker said in a statement. “Robo-advice will take centre stage as more solutions become available, and as investors themselves begin to engage with these non-traditional advice models.”

However, he said the US experience has shown that robo-advice still requires a human touch.

“Many providers think that if they get their robo-advice solution positioned right there is a huge market,” Peker said. “But the successful robo-advice firms in the US have found that clients don’t tend to use the service until they are first introduced to it through a phone-call from a human.

“People are less likely to implement things that are not personalised.”

The Investment Trends study found more than 80 per cent of financial advisers saw robo-advice as non-threatening and/or potentially beneficial to their businesses.

Over 50 per cent of financial adviser respondents said automation could free them up to deliver strategic advice while the ability to service more clients (43 per cent) and lowering costs (41 per cent) also ranked highly.

“Planners see robo-advice assisting across the entire advice delivery spectrum, from the front to the back office,” Peker said in the Investment Trends release.